PV of multiple cash flows: Ajax Company is expecting the following cash flows-$79,000, $112,000, $164,000, $84,000, and $242,000-over the next five years. If the company's opportunity cost is 15 per cent, what is the present value of these cash flows? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

The present value of the cash flows is $429,560. This is calculated by multiplying each cash flow by the present value factor for the appropriate number of years at 15%. The present value factors are:Year 1: 1 / (1 + 0.15)^1 = 0.8696Year 2: 1 / (1 + 0.15)^2 = 0.7561Year 3: 1 / (1 + 0.15)^3 = 0.6575Year 4: 1 / (1 + 0.15)^4 = 0.5718Year 5: 1 / (1 + 0.15)^5 = 0.4972The present value of each cash flow is then:Year 1: $79,000 x 0.8696 = $68,806Year 2: $112,000 x 0.7561 = $84,939Year 3: $164,000 x 0.6575 = $107,990Year 4: $84,000 x 0.5718 = $48,059Year 5: $242,000 x 0.4972 = $120,766The total present value of the cash flows is $429,560.

PV of Multiple Cash Flows: Ajax Company Is Expecting the Following